AASM News Archive

Health care reform overview: premium and cost-sharing subsidies

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American Academy of Sleep MedicineWednesday, August 15, 2012

With the recent Supreme Court decision to uphold the Affordable Care Act, there is much speculation on how this legislation will change clinical practice. While the unknowns are greater than what we currently understand about the ACA, the AASM has been analyzing what is in store for sleep medicine. Over the next several weeks, the AASM website will provide a synopsis of certain provisions in the bill. This week will focus on premium and cost-sharing subsidies.

Beginning in 2014, individuals who purchase health insurance coverage through the new health insurance exchanges will be eligible for financial assistance if their income is no more than 400 percent of the federal poverty level (FPL).These amounts are updated for inflation annually and vary by family size. In 2010, this amount is $43,320 for individuals and $88,200 for a family of four.

Two forms of financial assistance will be provided: A premium assistance tax credit and cost sharing assistance.

A premium assistance tax credit will be provided monthly to lower the amount of premium the individual or family must pay for their coverage. Cost sharing assistance will limit the plan’s maximum out-of-pocket costs, and for some people will also reduce other cost sharing amounts (i.e., deductibles, coinsurance or copayments) that would otherwise be charged to them by their insurance plan.

Both types of assistance will be tied in some way to the value of the coverage available in the exchanges. State exchanges will offer four levels of insurance plans which are sometimes called actuarial value. The health reform law requires that the actuarial value be 60 percent for bronze plans, 70 percent for silver plans, 80 percent for gold plans and 90 percent for platinum” plans.In addition, the out-of-pocket maximum for any of these plans may not exceed a limit that is determined annually. For 2010, the limit is $5,950 for individual coverage and $11,900 for family coverage.

Premium assistance

The premium assistance tax credit is calculated to limit the amount that an individual or family must pay for health insurance coverage in the exchange as a percentage of income. A sliding scale is used to determine the amount of the tax credit. For those at the lowest incomes (less than 133 percent of the FPL) the tax credit amount is based on limiting the individual’s premium contribution to no more than 2 percent of income. For those between 300 percent and 400 percent of the FPL, the tax credit will limit an individual’s contribution amount to 9.5 percent of income. A person who chooses to enroll in a less expensive plan (e.g., the lowest cost silver plan or a bronze plan) will receive the same tax credit amount and they will pay a lower premium. A person who chooses a more expensive plan (e.g., a higher cost silver plan or a gold plan) will receive the same tax credit amount, but will pay a higher premium.

Cost sharing assistance

People who qualify for the premium assistance tax credit will also be eligible for cost sharing assistance if they enroll in a silver plan. This assistance will further reduce the limit on the out of pocket maximum that can apply to their coverage, with the amount of the reduction depending on income. For those with incomes between 100 percent and 200 percent of FPL, a 2/3 reduction applies. (For 2010, this would make the out of pocket maximum $3,967 for individual coverage and $7,934 for a family.)

In addition, federal payments will be made to health insurers to increase the actuarial value of the plan for people with incomes under 250 percent of FPL. For example, for people with incomes between 100 percent and 150 percent of FPL, the actuarial value of the plan will be increased to 94 percent. This means that insurers must reduce plan deductibles, coinsurance or copayments in order to meet the higher actuarial value requirements.